Supreme Court Upholds Duty On Service Charges | Payment To Local Agent Held Condition Of Sale | Engineering Fees Directly Linked To Imports
Kiran Raj
The Supreme Court of India dismissed an appeal challenging the inclusion of engineering and technical service charges paid to an Indian agent in the assessable value of imported goods. The Division Bench comprising Justice Abhay S. Oka and Justice Ujjal Bhuyan delivered the judgment under its civil appellate jurisdiction, upholding the orders of lower authorities that upheld a customs duty demand of Rs. 64,47,244.00.
The appellant, M/s. Coal India Limited, a Government of India undertaking, had approached the Supreme Court under Section 130E of the Customs Act, 1962, contesting the order dated 20.04.2010 passed by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Kolkata. The appeal before the Supreme Court originated from the decision of the Assistant Commissioner of Customs who had finalized the provisional assessment and directed the appellant to pay the short-levied customs duty.
The dispute arose from a purchase order dated 20.12.2000 for spare parts for P&H Shovel placed by Central Coalfields Limited (a subsidiary of the appellant) on a U.S.-based supplier, M/s. Harnischfeger Corporation. M/s. Voltas Limited, Kolkata acted as the Indian distributor of the foreign supplier. As per the purchase terms, 8% of the Free on Board (FOB) value was to be paid to M/s. Voltas Limited in Indian Rupees for engineering and technical services.
The services included regular site visits, technical support, coordination for insurance surveys, and assistance with customs clearance. The Assistant Commissioner, in his order dated 03.03.2004, held that these service charges were in the nature of agency commission and were includible in the assessable value of imported goods under Rule 9(1)(a) and Rule 9(1)(e) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988, read with Section 14(1)(a) of the Customs Act, 1962.
The Assistant Commissioner finalized the provisional assessment and directed payment of Rs. 64,47,244.00. The Commissioner (Appeals) upheld this view in an order dated 21.06.2004, holding that the engineering and technical service charges were an inseparable condition of sale. The CESTAT affirmed this position, stating that payment to M/s. Voltas Limited was a prerequisite for the sale and thus had a direct nexus with the value of the imported goods.
The appellant contended that M/s. Voltas Limited provided post-importation services and that payments made to it were not related to the import value. Citing the Note to Rule 4 of the Customs Valuation Rules, the appellant argued that such post-importation services were not includible in the transaction value. It was also argued that M/s. Voltas Limited was not their agent but acted for the foreign supplier, and there was no contractual relationship between the appellant and M/s. Voltas Limited for the services.
In response, the respondent, represented by the Commissioner of Customs (Port), Kolkata, submitted that M/s. Voltas Limited was the local agent of the foreign supplier and provided pre-importation services necessary for sale. It was argued that these payments were required under the terms of sale and had a direct connection with the imported goods.
The Supreme Court examined Clause 5 of the purchase order and the foreign supplier’s quotation. The Court noted that the payment of 8% of the FOB amount to M/s. Voltas Limited was not deductible from the amount payable to the foreign supplier and was mandated under the sale terms.
The Court recorded: "The product support services i.e. engineering and technical services provided by M/s Voltas Limited were primarily related to the type and quantum of spare parts required to be supplied by the foreign supplier."
It was also observed that: "Such services were related to procurement of spares by the appellant and for the smooth sale of spares by the foreign supplier."
The Assistant Commissioner had determined that these services were not post-importation maintenance or assistance but were essential for facilitating the sale. The Court upheld this reasoning, noting that: "Engineering and technical service charges were not being paid for maintenance of any industrial plant, machinery or equipment."
CESTAT had previously concluded: "The services undertaken by M/s Voltas Ltd., apparently, are only at the instance of the US based supplier as the appellant has no choice in importing the spares without availing the services of Voltas Ltd., who is the agent of the American based supplier."
Further, the Tribunal noted that: "Payments made to M/s Voltas Limited were only as a condition of sale and not for any services rendered. Therefore, it had a direct nexus to the value of the goods imported."
Referring to Section 14(1) and 14(1A) of the Customs Act and Rule 9(1)(e) of the Valuation Rules, the Court recorded: "The services provided were directly relatable to the import of the goods by way of product support service which is covered by Sections 14(1) and 14(1A) of the Customs Act read with Rule 9(1)(e) of the Customs Valuation Rules."
The Court distinguished the present facts from precedents like J.K. Corporation Ltd. and Ferodo India (P) Ltd., where the excluded charges were for post-importation activities, noting that in this case, "services rendered by the Indian agent were not post-importation activities."
Dismissing the appeal, the Court held: "On thorough consideration of all aspects of the matter, we are of the considered opinion that the view taken by all the lower authorities is correct and no interference is warranted. There is no merit in the appeal. Accordingly, the appeal is dismissed."
Advocates Representing the Parties
For the Respondents: Mr. Arvind Kumar Sharma, AOR; Mr. Mukesh Kumar Maroria, AOR; Mr. G.S. Makker, AOR
Case Title: M/S. Coal India Limited vs. Commissioner of Customs (Port), Customs House, Kolkata
Neutral Citation: 2025 INSC 609
Case Number: Civil Appeal No. 8028 of 2010
Bench: Justice Abhay S. Oka, Justice Ujjal Bhuyan
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